1969 (7) TMI 119 - HC - Income Tax

Summary

Issues Involved:
1. Quantum of relief from United Kingdom income tax for the years 1958/59 to 1961/62.
2. Quantum of relief from United Kingdom profits tax for eight chargeable accounting periods between January 1, 1958, and December 31, 1962.
3. Interpretation of the term "relevant profits" under paragraph 9 of Schedule 16 to the Income Tax Act, 1952.

Detailed Analysis:

1. Quantum of Relief from United Kingdom Income Tax for the Years 1958/59 to 1961/62:
The appellant's entitlement to relief arises because it is liable to United Kingdom income tax on dividends received from sources in the USA and Canada, which have already suffered tax in those countries. The appellant sought relief under Section 347 of the Income Tax Act, 1952, and Schedule 16, which give effect to double taxation relief arrangements with other countries, including the USA and Canada.

2. Quantum of Relief from United Kingdom Profits Tax for Eight Chargeable Accounting Periods Between January 1, 1958, and December 31, 1962:
The appellant also sought relief from United Kingdom profits tax for eight chargeable accounting periods. The relief was sought under the same provisions as the income tax relief, given that the appellant's subsidiaries in the USA and Canada had already paid tax on their profits.

3. Interpretation of the Term "Relevant Profits" Under Paragraph 9 of Schedule 16 to the Income Tax Act, 1952:
The primary issue revolved around the interpretation of "relevant profits" under paragraph 9 of Schedule 16. The appellant argued that "relevant profits" should be the profits as computed for the purpose of Canadian or USA tax, which allowed greater deductions for depreciation, thereby resulting in lower taxable profits and higher relief. The revenue contended that "relevant profits" should be the profits shown in the subsidiaries' profit and loss accounts.

The court examined the language of paragraph 9, which states that the foreign tax to be taken into account is "that borne by the body corporate paying the dividend upon the relevant profits." The court concluded that "relevant profits" referred to the profits shown in the company's accounts, not the profits as computed for foreign tax purposes. This interpretation was supported by the definitions in sub-paragraphs (a), (b), and (c) of paragraph 9, which all pointed to distributable profits rather than tax-assessed profits.

The court also considered the appellant's argument that the revenue's interpretation would make the quantum of relief capricious and uncertain, as it would be affected by the directors' decisions on reserves. However, the court found that profits become "relevant" in this context because they are available for dividend distribution, and the directors' decisions do not provide sufficient grounds to depart from this view.

The appellant's reliance on the case of Sterling Trust Ltd. v. Inland Revenue Commissioners was also rejected. The court noted that, unlike in Sterling Trust, where there were two distinct funds, in this case, there was only one fund of profits, and the tax assessment did not impose the exigible rate on every dollar of the corporation's profits.

Conclusion:
The court dismissed both appeals, affirming that "relevant profits" under paragraph 9 of Schedule 16 to the Income Tax Act, 1952, refers to the profits shown in the company's accounts, not the profits as computed for foreign tax purposes. This interpretation determines the quantum of double taxation relief available to the appellant. The appeals were dismissed with costs.